Australia’s corporate hybrid market is gaining momentum with more than $5bn in issuance so far this year, and global issuers are taking notice.
NextEra Energy (NEE) is set to become the first Kangaroo corporate issuer in the Australian hybrid bond market. As a seasoned AUD senior bond issuer with an existing USD hybrid curve, NEE is well-positioned to tap into this market amid its large capital expenditure plans. A successful issuance could pave the way for other European and U.S. corporates, such as Volkswagen, ENGIE, BP, and Vodafone, to consider AUD hybrids.
AUD hybrids tend to trade tighter than comparable bonds in other currencies, offering an attractive funding option for international issuers. While some structures have weaker features—such as longer tenors and coupon deferability—corporates are expected to adjust their offerings to align with recent AUD deals to maximise equity credit. Moody’s ratings suggest many Baa2-rated corporates could issue IG-rated hybrids.
European issuers typically call hybrids on the first call date, except in the real estate sector during rate hikes. U.S. issuers, including NEE, are more flexible, sometimes deferring calls due to economic considerations.
Investor flows in AUD corporate hybrids surged amid Melbourne Airport’s new hybrid issuance. Tier 2 bonds saw strong Asian demand, particularly WSTP 15NC10 and BPCEGP 15NC10. In the USD market, NAB and Macquarie Bank priced senior bonds, while James Hardie secured IG ratings despite high-yield status.
In a single week we saw AUD 12 billion raised across 19 tranches. Notable issuers included CBA, Melbourne Airport, ING Bank, BPCE, and Volkswagen. BPCE’s Tier 2 deal attracted wide participation from Asia due to its high yield of 6.57%.
AUD corporate spreads widened slightly, with Industrials outperforming while Universities lagged. AUD Tier 2 bonds saw mixed movements, with Kangaroos outperforming. USD corporates tightened, led by Telcos, while Utilities and Oil & Gas underperformed.